427 F.2d 97 (7th Cir. 1970), 18044, Bath Industries, Inc. v. Blot
|Docket Nº:||18044, 18097.|
|Citation:||427 F.2d 97|
|Party Name:||BATH INDUSTRIES, INC., a Delaware Corporation, Plaintiff-Appellee, v. Emmet J. BLOT and Hambro American Bank & Trust Co., a New York Corporation, Defendant-Appellants, and Edward A. Merkle, Madison Fund, Inc., a Delaware Corporation, Mad International, Inc., a corporation, Richard E. McConnell, Donner Corporation, a Pennsylvania Corporation, Norton|
|Case Date:||May 20, 1970|
|Court:||United States Courts of Appeals, Court of Appeals for the Seventh Circuit|
Rehearing Denied July 17, 1970.
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Victor M. Harding, Laurence C. Hammond, Jr., Maxwell H. Herriott, Milkaukee, Wis., for defendants-appellants.
David E. Beckwith, Milwaukee, Wis., for plaintiff-appellee.
Before SWYGERT, Chief Judge, HASTINGS, Senior Circuit Judge, and KILEY, Circuit Judge.
HASTINGS, Senior Circuit Judge.
This is an appeal from an order of the district court granting plaintiff's motion for a preliminary injunction enjoining appellants and other defendants, as well as 'all persons controlled by them or in active concert with them,' from 'proceeding with their plan (including, but not limited to removing the chief executive officer of (plaintiff) Bath and calling for a special shareholders' meeting) until they have complied with Section 13(d) of the 1934 (Securities Exchange) Act.' The injunction is to remain in effect until it is determined that defendants have filed legally sufficient statements pursuant to Section 13(d).
Section 13(d), 13(e), 14(d), 14(e) and 14(f) were added to the 1934 Act by a 1968 amendment, the Williams Act. In general, the last four named subsections deal with acquisitions of stock by the issuer and with those by tender offers. Section 13(d) 1 deals with
acquisitions of stock by substantial stockholders and is the only section of the Williams Act involved in the present appeal. The legislative history shows that the purpose of the Williams Act was to close a gap in the disclosure requirements of existing securities laws by requiring full disclosure by persons or groups who 'purchase by direct acquisition or by tender offers * * * substantial blocks of the securities of publicly held companies.' 113 Cong.Rec. 24664 (1967). Senator Harrison A. Williams, Jr., of New Jersey, stated the purpose of his bill to be 'to require the disclosure of pertinent information * * * when a person or group of persons seek to acquire a substantial block of equity securities of a corporation by a cash tender offer or through the open market or privately negotiated purchases * * *.' id.
Broadly stated, under new Section 13(d)(1), any person who, after acquiring the beneficial ownership of an equity security of an issuer, is the owner of more than 10% Of the outstanding amount of such security, must file statements with the SEC, the issuer and stock exchanges disclosing specified information. Section 13(d)(3) defines 'person' as used in Section 13(d)(1) to include any 'group' acting 'for the purpose of acquiring, holding, or disposing of securities of an issuer.' Section 13(d)(5) exempts from the application of Section 13(d) acquisitions which do not amount to 2% Of the security outstanding within a twelve month period.
In the most simplified form, the issues for our review are when do a number of stockholders of a corporation become a 'group' within the meaning of the Williams Act and when must such group comply with the filing and notification provisions of that Act. Also involved is the propriety of the preliminary injunction entered by the trial court.
Only two other courts of appeal have dealt with the Williams Act. Neither touched the issues now before us. In Electronic Specialty Co. v. International Controls Corp., 2 Cir., 409 F.2d 937 (1969), the Second Circuit dealt with new Section 14(d) and chiefly with issues of the adequacy rather than the timing of compliance. In Susquehanna Corp. v. Pan American Sulfur Co., 5 Cir., 423 F.2d 1075 (1970), the Fifth Circuit did deal with new Section 13(d), which is before us, but again the primary issue was the adequacy of the compliance. Thus the issues raised on this appeal are said to be of first impression.
Plaintiff Bath Industries, Inc. (Bath) is a Delaware corporation with its principal place of business in Milwaukee, Wisconsin. Bath was organized as a holding company in 1967. Its Milwaukee office consists of a small staff including its president and chief executive officer, William D. Kyle, Jr. (Kyle), its executive vice president, Robert R. Greenwalt, and other personnel whose function it is to furnish overall policy, planning, financial, operating and legal guidance to Bath's subsidiaries.
Bath has three wholly-owned subsidiaries. Bath Iron Works Corporation (BIW), located in Bath, Maine, has been engaged in shipbuilding for over 70 years. Since about 1935 its principal business has been the construction of destroyers for the United States Navy. Ninety-five percent of its current business is with the Navy. Congoleum Industries, Inc. (Congoleum) was acquired by Bath in 1968. It is engaged in the manufacture of floor coverings, household furnishings and related products. It has seventeen plants located in New Jersey and throughout the country. Pennsylvania Crusher Corporation manufactures and sells gyratory crushers, impacters and other equipment.
Nine named defendants were made parties to the original complaint. Three
of these were dismissed without prejudice after they signed a settlement agreement with Bath. Three others have indicated a desire to be similarly treated, but have been denied dismissal pending a later determination of the validity of the settlement agreements by the trial court. 2 Two of the original defendants join in this appeal.
Defendant-appellant Emmet J. Blot (Blot) is the president and sole owner of Godolphin, Inc. Blot and Godolphin operate as financial consultants. Blot is a shareholder of Bath. Since April, 1966, he has been a director of Bath 3 and served as chairman of its executive committee from April, 1967 to April, 1969.
Defendant-appellant Hambro American Bank & Trust Co. (Hambro American) is a New York banking corporation. It is owned by a Delaware holding company, Eurus, Inc. Eurus, Inc., is, in turn, owned fifty per cent by Hambros Bank, Ltd. (Hambros), a London, England investment banking corporation, and fifty per cent by approximately twenty-five American stockholders, including Blot who has been a director of Eurus, Inc., since August, 1969. Hambros is a stockholder of Bath and, while not a defendant, is named in the preliminary injunction.
Defendant Edward A. Merkle (Merkle) is president of defendant Madison Fund, Inc., and a stockholder of Bath. Merkle was dismissed by stipulation in the trial court.
Defendant Madison Fund, Inc. (Madison) in a Delaware registered, closed end investment company located in New York City. It is a stockholder of Bath. Madison was dismissed by stipulation in the trial court.
Defendant MAD International, Inc. (MAD) is a foreign investment corporation with offices in Switzerland and New York. It is associated with defendant Madison and is a stockholder of Bath. MAD was dismissed by stipulation in the trial court.
Defendant Richard E. McConnell (McConnell) is vice president of defendant Donner Corporation. The record does not show that McConnell is a stockholder of Bath. Bath sought to dismiss McConnell by stipulation in the trial court pursuant to a signed settlement agreement, but the court refused to so order.
Defendant Donner Corporation (Donner) is a Pennsylvania corporation which acts as the investing agent and nominee for the William H. Donner family. It holds warrants to purchase Bath stock. Bath sought to dismiss Donner by stipulation in the trial court pursuant to a signed settlement agreement, but the court refused to so order.
Defendant Clark Estates, Inc. (Clark Estates) is a New York corporation. Although it owns no Bath stock, the trial court found that it provides investment advice and related services to a number of accounts owning Bath shares and in most instances determines how those shares will be voted. In the trial court, Clark Estates expressed a desire to enter into a settlement agreement with Bath. However, the court refused to permit the execution of such agreement and none was ever consummated. Clark Estates did not appeal, but we granted leave to its attorney to present a brief oral argument on its behalf in this appeal.
Defendant Norton Penturn (Penturn) is a Bath stockholder residing in Toronto, Ontario, Canada. He was not dismissed in the trial court but did not join in this appeal.
Also named as defendants were presently unknown X, Y and Z Investment
Companies and A, B and C Investment Banking and Brokerage Firms.
The district court held that plaintiff Bath had demonstrated a likelihood that it would ultimately prevail in its attempt to show that defendants had violated the Williams Act. It concluded that defendants and certain others constituted a 'group' which had acted together for the purpose of acquiring or holding Bath securities, as that term is defined in Section 13(d)(3), supra, of the Williams Act. Such group, the court found, owned beneficially, directly or indirectly, more than 10% Of Bath's stock, a precondition to the disclosure requirements of the Act. The court further concluded that the members of the group had agreed to pool their voting interests in Bath securities and to act in concert to carry out a plan to take control of Bath by replacing Kyle as its chief executive officer and by increasing the size of its board of directors. The court also found that some members of the group had...
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